A while ago you have entered into a currency swap which will expire in 2
years and 2 months. You are floating rate payer in US-dollars (USD)
(12-month libor) and 3% fixed rate receiver in UAE Dirhams (AED). The
notional principals are USD10’000’000 and AED37’000’000. Payments are
exchanged annually. The 12-month libor (in USD) 10 months ago was 2% (1
times c.p.a.). The current exchange rate is 0.27 The 2-month, 14-month
and 26-month spot rates in the USA are 2.5%, 3% and 3.4% (c.c.) and the
equivalent rates in the UAE are 4%, 3.8% and 3.7% (c.c.). What is the
value of the swap for you? How about your counter-party? Verify that
both pricing methods introduced in class – “swapping bonds†and â€using
FRAs†to value a swap – yield the AED same result.
years and 2 months. You are floating rate payer in US-dollars (USD)
(12-month libor) and 3% fixed rate receiver in UAE Dirhams (AED). The
notional principals are USD10’000’000 and AED37’000’000. Payments are
exchanged annually. The 12-month libor (in USD) 10 months ago was 2% (1
times c.p.a.). The current exchange rate is 0.27 The 2-month, 14-month
and 26-month spot rates in the USA are 2.5%, 3% and 3.4% (c.c.) and the
equivalent rates in the UAE are 4%, 3.8% and 3.7% (c.c.). What is the
value of the swap for you? How about your counter-party? Verify that
both pricing methods introduced in class – “swapping bonds†and â€using
FRAs†to value a swap – yield the AED same result.
